With Friday's payroll report mere hours away and the presidential election on Tuesday (let's not even entertain the potential for ballot recounts), I suppose we shouldn't be surprised that buyers failed to participate in Thursday's auction. What did surprise me, however, was how controlled Thursday's decline was. Take a look at the intraday E-Mini S&P 500 futures (Es) chart below and note how smooth and controlled the two intraday selloffs and subsequent areas of balance turned out to be.
It's possible buyers aren't concerned with missing out on a bounce-back toward the 50-day simple moving average (SMA). Or maybe traders are unwilling to make any meaningful bets ahead of the election. Whatever the reason, I keep staring at the daily Es chart and noting where the Relative Strength Index (RSI) is printing, and reminding myself a sub-30 RSI reading almost never results in superior short-sided traded location over a multiday/week timeframe.
As you can see on the daily chart above, the RSI on the Es is now beneath 30. And as discussed in Thursday's Trader's Daily Notebook, my baseline assumption is that the low RSI reading, while not necessarily bullish over an intermediate timeframe, is likely to lead to a notably more volatile day timeframe trading environment. Beyond an increase in volatility, I've always made a point of controlling my bullish feelings when the RSI prints above 70, and my grumpy bearish tendencies when it dips under 30.
Before we get to Friday's Es auction, I thought I'd remind folks stalking the iShares Nasdaq Biotechnology ETF (IBB) that price is now between the $240 and $250 support zone. Stocks like Amgen (AMGN) , Allergan (AGN) , Jazz Pharmaceuticals (JAZZ) , Intercept Pharmaceuticals (ICPT) and Charles River Laboratories (CRL) have seen their shares decline between 19% and 36% over the past month. RSI readings on these names are all under 20. Suffice it to say much of biotech is trapped in a horrific bear market. (Allergan is part of TheStreet's Action Alerts PLUS portfolio.)
However, I don't believe it's a stretch to say biotech has become awfully extended to the downside. While falling prices and atrocious technicals are never a reason to play the contrarian and get long, I believe traders willing to trade through extraordinarily volatile trading conditions should begin paying closer attention to the IBB. If, and I know this is a big if, markets stabilize and traders begin chasing performance into year end, I doubt it would surprise anyone to see large rebounds in the biotech sector.
While most traders are probably more concerned with Tuesday's election than another monthly employment report, I still expect the payroll figures to set the tone for Friday's auction. Let's avoid the guessing game and simply note that the Es has closed red for eight sessions in a row. A pre-market dip toward 2070 (the approximate location of the 200-day SMA) that then recovers and trades above 2084 to 2085.50 would likely attract huge interest from day timeframe traders trying to catch a short-term bullish reversal.
A sustained trade above the mid-2080s would leave Thursday's late-day sellers in a challenging position, and likely find dip buyers re-entering the auction. All trading above 2084 to 2085.50 would have me targeting a drive toward 2091.50 and 2098, with 2106 to 2108 being a notably more aggressive (and less likely to achieve) target.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my Twitter feed @ByrneRWS